Hospitals could bear the financial brunt of the American Health Care Act

he stakes couldn’t be higher for America’s hospitals in the debate over the GOP replacement for Obamacare. Here’s a quick breakdown of the top issues to watch and how they could impact providers across the country.

Medicaid, Medicaid, Medicaid

Hospitals could face a huge financial hit from the Medicaid overhaul as they grapple with lost payments and reduced volume. Republicans would freeze the expansion in 2020 (11 million people have gained Medicaid coverage under Obamacare) and impose block grants, or per capita limits in state funding, by 2020.

Safety-net hospitals are particularly worried right now. America’s Essential Hospitals, an organization that represents those providers, warned that the cuts would have consequences for hospitals that are already operating on thin margins. “Our hospitals could not sustain such reductions without scaling back services or eliminating jobs,” its statement said.

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The GOP’s proposal would restore disproportionate share payments that were cut under Obamacare in exchange for increased volume expected from the Medicaid expansion. Thiswould provide a measure of increased financial support for safety-net hospitals. But that is cold comfort to many providers who could face increases in uncompensated care costs.

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Repealing Obamacare’s insurance subsidies

The GOP replacement could also expose hospitals to greater financial risk from patients who buy insurance in the individual insurance market. The proposal would replace the current subsidy program by 2020 with age-based tax credits. Robert Huckman, a professor of business administration at Harvard Business School, said the change would broaden financial assistance across the income scale, but provide less assistance per person than Obamacare to the people most in need.

“It takes from the most poor, to give to the less poor,” he said. For hospitals, that could mean higher levels of uncompensated care, particularly for those that serve larger low-income populations who might either not be able to afford available health care plans nor be eligible for Medicaid. “There is a greater level of concern now about how much support those patients will have in paying for their care,” he said.

A different kind of safety net

The Republican plan includes a new “patient and state stability fund” that would provide money, directly or indirectly, to hospitals to help pay for the care of patients with significant health needs but limited insurance coverage. The provision would allow states to create high-risk pools or reinsurance programs to help pay for their care.

It would provide $15 billion in funding to states in 2018 and 2019, and $10 billion annually from 2020 to 2026. But how that money would trickle down to hospitals — and whether it would truly cover the cost of uncompensated care — remains to be seen.

Huckman said the switch to such a system — along with per-capita allotments under Medicaid — is going to shift more risk onto hospitals and increase competition among them for scarce dollars. “This could magnify the benefits of being a large provider relative to a smaller competitor,” he said. “The potential is certainly there for greater consolidation.”

A new cost equation for seniors

The GOP plan would shake up coverage for older Americans by allowing insurers to charge them five times more in premiums than younger, healthier people. Insurers have long bemoaned the current 3-to-1 premium ratio as unworkable, leaving them with unmanageable losses. While this change could help stabilize the insurance market, it could also force seniors to pay more out-of-pocket, potentially leaving hospitals with more people who are not able to afford the full cost of their care.

Eliminating the Prevention and Public Health Fund

Hospitals and public health workers would lose a funding source aimed at combatting America’s epidemic of chronic disease. By fiscal year 2019, the GOP plan would eliminate this nearly $1 billion allocation, which helps pay for public health initiatives, such as cancer screenings and immunization programs, and funds pharmaceutical research and opioid treatment.

More than 300 groups, including the American Heart Association and the American College of Preventive Medicine, recently signed a letter warning of the “dire consequences” of the fund’s elimination. The overall financial impact on providers is unclear, as the GOP could still reroute the funding through other channels. But the president has said he will cut domestic spending, so it’s not clear where the funds would come from.

The known unknowns

The GOP’s proposal focuses on repealing certain financial and tax provisions associated with the Affordable Care Act. What we don’t know is how Republicans in Congress and the Trump administration will alter data-reporting requirements and performance penalties focused on hospital readmissions. The president signed an executive order saying regulations need not be enforced if they impose financial burdens on entities like hospitals involved in the Affordable Care Act. That could be a significant silver lining for providers. Many hospital leaders have criticized federal penalties as unfair to those thattreat the sickest patients and low-income populations with fewer resources to stay healthy and ward off complications.